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Cape Town property poised for growth in 2025

by Dave Chambers
CBD Aerial

Optimism is high for Cape Town’s property scene this year. We ask three experts to unpack the trends. 

It’s the best city in the world to visit, according to Time Out, but beneath the world-famous face of Table Mountain a web of economic forces are at play this year in the 1.6 km² covered by the Cape Town Central City Improvement District (CCID). 

On balance, however, three property moguls are optimistic about what 2025 may bring as work progresses on developments worth more than R7 billion. “Across the board, I think we’ll probably see well over 10 % capital growth in the CBD this year, probably closer to 12-14 %,” says Jeffrey Kleu, CEO of developer Capital Point.

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Pool deck
An artist's impression of the rooftop pool area at TENONV, a new residential development in the Cape Town CBD.

THE OFFICE BLOCK OUTLOOK

In the commercial office sector, Kleu says the Covid-19 pandemic cut the value of office buildings from about R20,000/m² to R10,000-R12,000. “So that stock became really affordable, with residential developers buying and converting them, leaving fewer commercial buildings in the market.

“Now, with everyone going back to the office, the value of commercial buildings has risen back to around R20,000-R22,000/m². Rentals have already increased quite dramatically. I’m bullish on commercial space because of the lack of supply and with all the foreigners coming to Cape Town and ongoing semigration, they all need a place to work.”

Thibault Investments COO and CCID deputy chairperson Grant Elliott expects many people who haven’t yet returned to the office to do so. “They want that sense of belonging. They want to be with their team. They need that physical connection with people,” he says.

“When you’re talking about contact centres and service providers that are interacting daily with their clients face-to-face, they’re predominantly going to be back in the office.”

Elliott says the decline in working from home coupled with the economic optimism linked to the formation of the Government of National Unity in mid-2024 would further reduce office vacancies and push up rentals.

“The very low rentals offered to attract tenants and fill vacant space have steadily started to climb back and are probably now at pre-Covid levels, if not verging on being slightly higher in premium developments.

“We are seeing more and more P-grade leases being signed with rentals in excess of R200/m², which has been pretty much a concrete ceiling. Overall, the outlook for offices is positive.”

Murray Clark, CCID board member and founder and CEO of Neighbourgood, expects landlords to invest in the quality of their offerings. “The best buildings will be upgraded with amazing amenities, cafés, wellness studios, a lot of sustainability, furnished options, unfurnished options – anything and everything versus standard B/C-grade offices.

“A lot of the market will elevate itself to A or B grade to retain clients, or it will be repurposed. You won’t have much in the middle because those tenants aren’t really there anymore.”

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CBD cityscape
Cranes abound in the Cape Town CBD where the value of property development in 2023 was more than R7.285 bn.

NEW RESI STOCK

Clark welcomed the significant amount of new residential stock due to hit the market this year. “We need a lot more density in the city, which translates to more feet on the streets and better business for the retailers on the ground floor,” he says.

“I’d love to see more people living in the city, not just short-term rentals, so I think the additional stock will hopefully create more affordability for people looking to live in the CBD for longer than a few weeks.

“I like a blend of both. I think culture comes to life when you’ve got a cool, eclectic mix of people from all over the world – locals, foreigners, everyone. It speaks to the diversity that South Africa and Cape Town are well known for.”

Clark says Neighbourgood is adapting to focus on medium- to long-term rentals. “There’s a saturation of short-term rentals in Cape Town. As an example, we’ve got 24 000 listings on Airbnb versus another city that we’re in, San Francisco, with only got 7 000. And San Francisco has a much bigger market, even though there’s regulation around short-term rentals.

“For us as developers, a mid- to long-stay product is more stable. There’s also institutional capital behind long-term rentals. If you look at where potential scale is, it’s much easier to focus on long-term. It’s contractual and it’s easier to forecast, and that’s a lot more interesting to us than just generating high net income on a per unit basis for a smaller group of properties. I get why people do it, obviously, but in the South African context the ceiling will only be so high.”

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Foreshore Coffee
The Foreshore foyer of One Thibault Residence, a residential component of One Thibault.

THE IMPACT OF VISITORS

Clark also highlighted the issue of tourism’s seasonality. “There’s a big scramble for long-term tenants between April and August, and 5 000-6 000 units come back onto the listings because all the short-term tenants have gone home. And then everyone is chasing the same business.”

Thibault Investments’ holding company, the Heriot REIT, has more than 600 apartments within the bounds of the CCID which it runs as aparthotels – the buildings concerned include One Thibault on Thibault Square, the nearby Havn on Adderley Street and Habitat neighbouring Taj Cape Town – and he says while they are performing well, he expects competition to intensify this year.

“There are a number of additional office-to-residential building conversions taking place. Operators are going to have to uphold their quality, because that’s what will probably make the difference to consumers.”

In general, Elliott expects hospitality to perform well, and probably better than any other sector. “It’s going to be interesting to see what happens with tourism,” he says. “The City of Cape Town and the province are driving tourism heavily, which is good, but there is also a move from the national government to limit short-term letting, which would be a great pity.”

In November, the Department of Tourism said it was finalising a policy framework regulating short-term rentals, aiming to strike a balance between the needs of tourism and the shortage of homes for locals.

Elliott says he understands the argument that short-term letting is potentially locking out residential stock that could be rented to Capetonians and making long-term rentals unaffordable. “But the hospitality sector is a huge job creator and there are property developers who are making substantially better returns doing business in the short-term letting market than with traditional long-term lets,” he says.

HAVEN FOR INVESTORS

Kleu says Cape Town is a haven for investors because two markets are “jumping in as fast as possible” – people from throughout South Africa and the international market, which is taking advantage of the growth in direct flights to the city.

“As a result, we’re seeing huge demand for our residential units in the City Bowl, the Atlantic Seaboard, and as far as places like Bloubergstrand and all the way to Hout Bay and Noordhoek. Everything that comes out in the CBD is selling on launch day.”

Two years ago, said Kleu, it was possible to buy new stock in the CBD for R45,000-R50,000/m², but he expects prices to reach R60 000-R65 000 this year. “The CBD has been cleaned up, the crime has been clamped down on, and we’re looking at other ways to incentivise more people to come back to the city and to live in the city,” he says.

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The Terraces
Bree Street in downtown Cape Town.

RETAIL SECTOR

Kleu says demand for on street retail space in the CBD is high and stock is limited, resulting in capital values leaping from about R20,000/m² during the pandemic to R27 500-R30 000. “I don’t see that slowing down either. In the good streets like Loop, Harrington or Kloof, I think we’re going to see escalations all the way up to R35 000/m²,” he says, because rentals are starting to increase from R250/m² to R350.

Elliott expects retail sector growth to remain relatively subdued despite some easing in fundamentals such as inflation and interest rates. He says he will watch with interest the new shops introduced with the redevelopment of The Mutual. “There’s a new Checkers and national fashion retailers and food outlets,” he says.

IMAGES: Carmen Lorraine, CCID

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